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CLOSING COMMENTS 11-8-04 A favorable reaction to the re-election of President Bush, falling oil prices and a nice surprise from Friday's Employment Report provided a powerful stimulus for the stock market last week. The Dow surged 360 points, or 3.6%, and is now down just 0.6% for the year after closing at 10387. The S&P 500 surged 36 points, or 3.2% and is now up 4.9% in 2004, after ending the week at 1166. The Russell 2000 rose 20 points, or 3.5% and remains the year's best-performing index, up 8.5%. The NASDAQ, which added 64 points last week, is up just 1.8% for the year. The last two weeks have been bullish for equities, and after seeing six months of caution, a welcome sight. Many of the catalysts for the increase, such as lower energy prices, the outcome of the election and the lack of downside surprises surrounding earnings, have validating the new upward trend. The technical picture has brightened considerably, as the S&P 500 established a new high for the year, and several indexes broke through key resistance levels. The Dow also staged an impressive breakthrough against the bearish trend lines that date back to 2001. Technology, reflected by the NASDAQ appears to be lagging behind the other indexes however. The NASDAQ, for example, still remains 5.7% below its high for the year. One of the culprits remains the Semiconductor Index, which has been one of the worst performing sectors of the market. Many analysts think that it will be difficult for technology stocks to stage a rally without the participation of this influential group, and investors could target this area next. Last week, the Semiconductor Index rose just 1.3%. Interestingly, many of the high-beta technology momentum names fared poorly last week, as money also rotated out of the Internet Sector, one of the year's best performing areas, into more basic areas. Laggards included Google (GOOG), which fell 11% last week. Wireless stocks also turned in a lackluster performance, led lower by disappointing earnings results from Qualcomm (QCOM), down 8%, and Research in Motion (RIMM), down 11.8%. So what did well last week? Phillip Morris (MO) rose 11.5%, after the company posted better than expected earnings and announced that it was considering breaking the company up. Retailer Sears (S) jumped 31% after a prominent real estate trust purchased a position in the company, leading to speculation that its real estate could be worth much more than the value of the company itself. Merck (MRK) and Pfizer (PFE) were the only Dow stocks to declined for the week. Nearly 3 stocks on the NYSE were up for every 1 down, while the ratio on the NASDAQ was 2:1. What can investors expect this week? Possibly some profit taking, as the S&P 500 has only advanced for nine consecutive days, as it has during its current run, 5 times since 1990. The following week, the market has essentially been flat, although it has averaged a 2% gain over the following month. Also, the Volatility Index, which is a contrarian indicator, closed below 14 last week, near the lowest level in nine years. However, with investors looking for reasons to buy, catalysts could come from earnings reports from several high-profile companies. Tuesday morning, Marsh MccLennan (MMC) is expected to report results. After the close, technology bellwether Cisco Systems (CSCO) reports earnings. Thursday morning, retailers Tiffany & Co. (TIF) and Target (TGT) post profits. Later that day, Dell Computer (DELL) releases earnings. Microsoft (MSFT) holds its Annual Shareholder's meeting on Tuesday. Broadcom (BRCM) and Coca-Cola (KO) host Analyst meetings on Thursday. Friday, AMD (AMD) holds a similar event. The two-day AEA Classic Conference for small-cap companies begins Monday in Monterrey, California. Goldman Sachs holds a two-day software conference beginning Monday in New York. Smith Barney Citigroup holds a Transportation Conference the same day. Deutsche Bank holds a two-day Semiconductor and Semiconductor Capital Equipment Conference beginning Wednesday in Las Vegas. The bond market is closed Thursday for Veteran's Day. The headline event of the week is likely to be the Federal Reserve's decision on interest rates, to be announced Wednesday afternoon. Expectations are that the body will increase interest rates by 25 basis points, and may change its policy statement modestly as a result of the strong Employment Report on Friday. Tuesday, September Wholesale Inventories will be announced. Wednesday, the September trade deficit will be reported. Also, the International Energy Agency releases its monthly oil market report. Friday, retails sales will be announced for October, along with the preliminary November Michigan Sentiment Index. Stay Tuned!